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Hate the Blockbuster Deal? Dish Shares are Still a Bargain

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Here's a newfangled technology that the markets trust is here to stay: Television.

Cable giants Comcast(Nasdaq: CMCSA), Cablevision Systems(NYSE: CVC) and Time Warner(NYSE: TWC) and satellite broadcasters DirecTV(Nasdaq: DTV) and Dish Network(Nasdaq: DISH) as a group have outperformed the S&P 500 in the past year.

Most of these TV stocks look pricey now. The trailing P/E ratios for this group run as high as 28 times 2010 earnings.

And TV stock projected P/E ratios are way up there, too. At a time when the average S&P 500 stock is trading at 13.7 times 2011 estimated earnings, Cablevision, Comcast and DirecTV are all sporting P/E ratios of more than 15 times.

But is there a table-pounding bargain here? Look at Dish Network.

Dish shares trade at just 11 times trailing earnings and 9.2 times the $2.61 a share the company is projected to earn in 2011. Dish's enterprise multiple -- that's its enterprise value divided by trailing earnings before interest, taxes, depreciation and amortization -- is a paltry 3.9 versus 9 to 12 for its larger rivals.

Even Dish's price/sales ratio is a mere 0.8, half that of its larger rivals.

Bargain? Well, this Englewood, Colo., outfit faces some challenges. It is the smallest of the big five. It hasn't boosted its base of 14 million subscribers much in the past few years. And it just agreed to a $320 million deal to purchase video-store chain Blockbuster.

What's a high-tech satellite broadcaster like Dish Network doing buying a bankrupt chain of video-rental stores? There's a whiff of desperation here. The deal has industry observers like Forbes's Dorothy Pomerantz scratching their heads. But as she observes, Dish Network chief Charlie Ergen didn't get onto the magazine's list of wealthiest Americans "by making dumb deals."

Besides, the $228 million in cash Ergen plunked down for Blockbuster is chump change for Dish. It was less than 10% of Dish's cash on hand:

And maybe there's a reasonable strategy here. Go ahead and snicker, but some people still go to Blockbuster. They're late-adopters who simply haven't upgraded to next-generation television service. Ergen may believe that Blockbuster's stores and sales staff can provide his company a clever way to reach them.

It's the greatest loss-leader ever: Buy a chain of stores in order to convince the chain's customers to dump their old video-renting habit in favor of Dish Network's rich trove of movie channels and pay-per-view offerings.

Of course, if Ergen is wrong, Dish investors may wish he had opted to simply buy back $228 million of Dish's own, very cheap stock. Dish is notorious for refusing to pay dividends or buy back significant amounts of its own stock. YCharts Pro rates Dish shares a "neutral."

By the way, if you're fond of cheap stocks that pay out dividends or benefit from generous stock-buyback programs, you may be frustrated with the TV industry. The two most generous of the big five in regards to stock buybacks and dividend payouts are DirecTV and Time Warner. Alas, neither stock rates an "attractive" in the YCharts Pro system.